Microsoft Beats Earnings Expectations But Stock Slides

Microsoft’s latest earnings report, released on January 28, 2026, has sent ripples through the tech and investment worlds. The company, long heralded as a leader in both cloud computing and the artificial intelligence (AI) revolution, posted fiscal second-quarter results that, on paper, would seem to be the kind of blockbuster performance Wall Street dreams of. But while the numbers sparkled, the market’s reaction was decidedly muted—raising questions about just how high the bar has now been set for Big Tech, and whether Microsoft’s massive bets on AI are on track to deliver the returns investors crave.

Let’s start with the headline numbers. According to Microsoft’s official press release and corroborated by outlets including Quartz, The Wall Street Journal, and Investor’s Business Daily, the company reported $81.3 billion in revenue for the quarter ended December 31, 2025—a 17% increase over the prior year. Adjusted earnings per share (EPS) landed at $4.14, up 24% and handily beating analyst expectations of $3.91. Net income soared to $38.5 billion, or $5.16 per diluted share, with operating income climbing 21% to $38.3 billion. Notably, GAAP net income was up 60%, thanks in part to $7.6 billion in net gains tied to Microsoft’s investment in OpenAI.

Much of this growth was powered by Microsoft’s cloud and AI businesses. Azure, the company’s flagship cloud platform, grew by 39%, essentially matching Wall Street’s lofty estimates. Under the broader Microsoft Cloud umbrella, revenue crossed the $50 billion mark for the first time, reaching $51.5 billion—a 26% jump. Productivity and Business Processes, which includes Microsoft 365 and Dynamics 365, brought in $34.1 billion (up 16%), with Microsoft 365 commercial cloud up 17% and Dynamics 365 up 19%. Intelligent Cloud revenue came in at $32.9 billion, up 29%.

But not every part of Microsoft’s empire was firing on all cylinders. The More Personal Computing segment, which houses Windows, Surface, and Xbox, posted $14.3 billion in revenue, down 3%. Xbox content and services fell 5%, marking a rare weak spot in an otherwise robust quarter.

One of the most eye-popping figures was Microsoft’s commercial remaining performance obligation—a measure of contracted future revenue—which jumped 110% to $625 billion. That’s a staggering pile of business locked in for the future, underscoring just how deeply Microsoft’s services are embedded in the global digital infrastructure.

So why, with all these impressive stats, did Microsoft’s stock tumble? Shares fell more than 6% in after-hours trading, a reaction echoed across financial news outlets. According to MarketWatch, investors were left unsatisfied by the pace of Azure’s cloud growth and skeptical about how quickly Microsoft’s heavy AI investments would translate into tangible profits. The sentiment was summed up by the market’s response: in 2026, simply beating expectations is no longer enough—investors want proof that AI spending will pay off, and soon.

Part of the concern stems from the fact that Azure’s 39% growth, while strong, was slightly slower than in previous quarters. As reported by Dow Jones, Microsoft’s CFO Amy Hood addressed this on the earnings call, noting that limited availability of AI hardware is constraining Azure’s growth potential. "Cloud demand is still outpacing supply," Hood told investors, but she cautioned that Azure growth could slow in the current quarter as hardware bottlenecks persist.

At the same time, Microsoft’s capital expenditures have soared. The company pegged capex at around $37.5 billion for the quarter, well above what Wall Street had modeled. Property and equipment, net, climbed to $261.1 billion—an increase of more than $56 billion since the end of the prior fiscal year. This reflects the immense physical infrastructure required to support the AI boom: data centers, servers, networking hardware, and all the power and real estate that go with them.

Despite these massive outlays, Microsoft returned $12.7 billion to shareholders through dividends and buybacks during the quarter—a clear signal of confidence in its cash-generating abilities. But the sheer scale of spending has some analysts worried about the timeline for seeing a return on investment. As Quartz put it, "The bill is the problem—or at least the question investors keep asking about."

Another wrinkle is Microsoft’s evolving relationship with OpenAI. Last fall, the company agreed to give up its right of first refusal on OpenAI compute, even as OpenAI committed to buying a gigantic block of Azure capacity. This move, while great for Azure bookings, adds complexity to Microsoft’s AI strategy. The OpenAI partnership is now less about exclusivity and more about being a major customer with its own leverage—a shift that leaves some wondering how durable Microsoft’s AI advantage really is.

It’s also worth noting the broader context. On the same day as Microsoft’s earnings release, Meta Platforms (the parent company of Facebook) reported stronger-than-expected progress on AI monetization, sending its shares up more than 6%. As Baird analyst Colin Sebastian wrote in a note to clients, Meta’s “implied 2026 revenue guidance was well above whispers,” suggesting that investors are rewarding companies that can show clear, immediate payoffs from AI spending.

Microsoft, for its part, continues to emphasize its commitment to responsible AI. In a statement, the company said it is “committed to making AI available broadly and doing so responsibly, with a mission to empower every person and every organization on the planet to achieve more.” This echoes CEO Satya Nadella’s remarks in the earnings release: “We are only at the beginning phases of AI diffusion, and already Microsoft has built an AI business that is larger than some of our biggest franchises.”

Still, the market’s message is clear: the era of easy applause for Big Tech is over. Investors want to see not just growth, but durable operating leverage and a clear path to monetizing the AI buildout. As Microsoft’s experience this quarter shows, even the best numbers may not be enough to satisfy a market hungry for proof that the future is now—and that the massive investments pouring into AI will pay off sooner rather than later.

For now, Microsoft remains at the forefront of the AI and cloud revolutions, but the pressure is on to turn its technological leadership into sustained, profitable growth that lives up to the sky-high expectations of Wall Street and the world.